Saturday, September 05, 2009
9:11:25 PM EDT

It's Only Temporary

by
James Brown

Editor's Note:
Our watch list shrank last week with a handful of stocks graduating to the watch list. We're adding two more tonight and I'm sure we'll quickly find more bullish candidates.

New Watch List Entries

Cost - Costco Wholesale

EMR - Emerson Electric Co.

Active Watch List Candidates

BEAV - BE Aerospace Inc.

BG - Bunge Limited

ERJ - EMBRAER - Empresa Brasileira de AeronÃ¡utica

IGT - Intl. Game Technology

MEE - Massey Energy Corp.

MICC - Millicom Intl. Cellular

TEX - Terex Corp

X - United States Steel Corp.

Dropped Watch List Entries

BJS was dropped as a watch list candidate after BHI announced its acquisition last week.

CNX, CRS, and XIDE hit our entry points and graduated to the play list.

CLF was promoted as a new play.

WLT will be removed this week as a watch list candidate.

New Watch List Candidates:

COST $55.47 +0.48 -- Costco Wholesale

COST exploded higher last week when the company announced better than expected August same-store sales figures. Shares were already looking bullish prior to the announcement with a breakout above resistance near $50.00. Both consumers and businesses are trying to pinch pennies and COST should continue to grab market share.

We want to buy LEAPS on a dip at $51.50, which means COST needs to fill the gap from last week. If triggered we'll use a stop loss at $47.00. Our target is the $65.00 region.

Company Info:
Costco ended its 52-week fiscal year on August 30, 2009 with 559 warehouses in operation, including 406 in the United States and Puerto Rico, 77 in Canada, 21 in the United Kingdom, seven in Korea, six in Taiwan, nine in Japan, 32 in Mexico and one in Australia. The Company also operates Costco Online, an electronic commerce web site, at www.costco.com and at www.costco.ca in Canada. The Company plans to open an additional seven to eight new warehouses (including the relocation of one to two warehouses to larger and better-located facilities) in the first four months of fiscal 2010, prior to the end of calendar 2009.
(source: company press release or website)

Buy-the-Dip trigger: $51.50

BUY the 2010 January $50 calls (symbol: PRQ-AJ)

Chart of COST:

EMR $37.41 +0.66 -- Emerson Electric Co.

EMR has been forming a long-term bottom for months. Shares are on the verge of breaking out higher from this consolidation. I'm suggesting readers buy LEAPS at $38.00. If triggered our target is the $47.50-50.00 zone. We'll use a stop loss under the July low a $33.50. EMR doesn't move super fast so I'm listing the 2011 LEAPS.

Company Info:
Emerson, based in St. Louis, Missouri (USA), is a global leader in bringing technology and engineering together to provide innovative solutions to customers through its network power, process management, industrial automation, climate technologies, and appliance and tools businesses. Sales in fiscal 2008 were $24.8 billion and Emerson is ranked 94th on the Fortune 500 list of Americaâ€™s largest companies.
(source: company press release or website)

Breakout trigger: $38.00

BUY the 2011 January $40 calls (symbol: VHH-AH)

Chart of EMR:

Active Watch List Candidates:

BEAV $17.73 +0.52 -- BE Aerospace Inc.

BEAV dipped to $16.40 last week. Shares appear to be forming a megaphone-shaped pattern, which is bearish. I'm keeping our trigger at $15.00. If triggered our stop is at $11.90.

Buy-the-Dip trigger: $15.00

BUY the 2010 January $15.00 calls (symbol: BQV-AC)
or
BUY the stock at $15.00

Note: At $15.00 you could just buy the stock instead but the $15 calls will allow you more leverage on your investment.

Chart of BEAV:

BG $66.19 +0.56 -- Bunge Limited

I don't see any changes from my prior comments on BG. We're still waiting for a dip. Our trigger is at $63.00. More conservative traders may want to wait for a dip closer to $60.00 and its longer-term trendline of support. We'll use a stop loss at $54.75. If triggered we're going to aim for the $85-90 zone. Currently the Point & Figure chart is bullish with a $94 target.

Buy-the-Dip trigger: $63.00

BUY the 2010 January 70 calls (BGW-AN)

Chart of BG:

ERJ $21.86 +0.16 -- EMBRAER - Empresa Brasileira de AeronÃ¡utica S.A.

ERJ came awfully close to hitting our trigger last week. The low was $20.60 and our trigger was at $20.50. After watching how ERJ has reacted this week I'm adjusting our trigger again. This time down to $19.00. We'll keep the stop at $16.45. Our target is the $29-30 zone.

Buy-the-Dip trigger: $19.00 *new*

BUY the 2010 January $20.00 call (symbol: ERJ-AD)

Chart of ERJ:

IGT $20.99 +0.41 --- Intl. Game Technology

IGT also came close to hitting our trigger at $19.00. Shares should have support at the bottom of its bullish channel (near the 50-dma). Thus I'm keeping the trigger at $19.00 but I'm raising the stop loss to $16.75. We only want to open small positions at least 1/2 our normal trade size. Our long-term targets are $25.00 (sell half) and $29.00 (sell half).

MEE $27.57 +0.74 -- Massey Energy Corp.

I'm adjusting the trigger again on MEE. We want to buy LEAPS on a dip at $23.00. We'll keep the stop loss at $19.95. Our long-term target is the $35.00-40.00 range. Readers may want to consider the 2011 January calls instead.

Buy-the-Dip trigger: $23.00 *new*

BUY the 2010 January $25.00 call (MEE-AE)

Chart of MEE:

MICC $71.04 +2.22 -- Millicom Intl. Cellular

Foreign telecoms saw a decent bounce on Friday but the short-term trend for MICC is still down. Once the stock breaks support near $68 it has a chance to drop toward stronger support near $60.00. Currently the plan is to buy a correction back toward $62.50.
Buy-the-Dip trigger: $62.50

BUY the 2010 January $70 call (symbol: CQD-AN)

Chart of MICC:

TEX $16.61 +0.55 -- Terex Corp.

I'm adjusting our strategy on TEX. We only want to trade the breakout trigger at $18.25 right now. I'm temporarily removing the dip trigger point at $15.00. Our upside target is the $28.00-30.00 zone.

WLT $55.05 -0.42 -- Walter Energy Inc.

I'm giving up on WLT. We've been waiting for the right entry point for weeks. At this time I'm dropping it from our play list but I'll keep the stock on my watch list to see if it presents an entry point down the road. The area I'm watching is the $45-40 zone. I'd prefer to see WLT test support near $40.00 before considering new positions.

Buy-the-Dip trigger: None / dropping WLT.

Chart of WLT:

X $42.36 +0.20 United States Steel Corp.

I don't see any changes from my prior comments on X. We might want to buy dips near $40.00 and its rising 50-dma instead of waiting for a deeper correction. I'm leaving the trigger at $37.50 for now but keep an eye on X for a bounce from $40 this week. I'm raising our stop loss to $33.75. Our target is the $60-70 zone.